ADM: Focus On Expenditures & Strengthening Overseas Operations

Archer Daniels Midland Company (NYSE:ADM), an agribusiness giant, reported earnings for its fourth quarter that missed analysts’ expectations, as weak margins, due to high corn prices meant that the ethanol division swung to a loss against last year’s profit. Grain trading activity was also affected adversely due to tight grain supplies, and this factor alone led to a 64 percent fall in its profit from the agricultural services business. However, the company’s global oilseeds business, particularly in South America, put in a solid performance.

The agricultural company faced severe difficulties in its business, due to adverse weather that affected corn and soybean crops – a drought and high temperatures have drastically lowered crop output, and as a result the two grains have traded on futures exchanges at record highs through July. Chief Executive Patricia Woertz said on the conference call, “As we look ahead, while the drought in the U.S. has reduced the potential size of the U.S. corn crop, we are tracking the development of other crops in North America and in Europe. While U.S. crop carryouts are expected to be low, we have an exceptional and experienced business team to manage through this environment. Conditions like these demonstrate the vital role of our global agribusiness. As weather has regional effects on crops, we respond by working with our customers to provide the best alternatives to meet their needs from all growing regions of the world.”

The company’s global reach is however, expected to help it source grain from high yield areas to shortfall areas.

In such a scenario, it is interesting to look at the recent capex spending and philosophy of this agro major (Source: Capital Spending and Acquisition Update FY2012 from its Q4 2012 conference presentation here)

The philosophy is to focus expenditure on agricultural services and oilseeds and on strengthening international origination and processing footprint and also U.S. export infrastructure. As a result about half of ‘growth’ spending is outside of the U.S.

Major growth projects include:

Elstar Oils in Poland

“Acquisition of Elstar Oils is an important step in Archer Daniels Midland Company (NYSE:ADM)’s strategy to acquire and consolidate existing oilseed processing, food manufacturing and biodiesel capabilities in this growing origination and consumer market,” according to Brent Fenton, president, ADM Europe. “Elstar’s facilities are ideally located to complement and expand our ownership in the Eastern Europe region.” Elstar, located in northern Poland, operates a rapeseed crushing, refining, solid-fat packaging, and oil bottling facility in Czernin and a fully-automated biodiesel facility in Malbork.

Paraguay crush plant

ADM, from its headquarters in Minga Guasu, processes about 30 percent of Paraguay’s output of grain and oilseeds. Soybean production in Paraguay has been growing, and in 2010, ADM began constructing a soybean crushing plant that will produce protein meal for animal feed, as well as vegetable oil. The new plant, with an anticipated daily crush capacity of 3,300 metric tons, will increase local crop-origination and export capacity. It will be located adjacent to an ADM fertilizer-blending plant in Villeta, near the capital city of Asunción, and is expected to be completed in 2012.

Wisconsin grain elevators

Archer Daniels Midland Company (NYSE:ADM) has acquired five grain storage elevators from Olsen Brothers Enterprises and, in a separate transaction, has contracted to acquire four grain storage elevators from Olsen’s Mill Acquisition Company/Ag Services of Wisconsin. ADM has also assumed a lease for an elevator from Olsen’s Mill Acquisition Company. All 10 elevators are located in Wisconsin, and have a combined storage capacity of approximately 20 million bushels. ADM began operating the elevators in August under lease agreements.

“The acquisition of these elevators expands our grain origination footprint into Wisconsin, a new origination area for ADM,” said Joe Taets, the president of ADM’s Agricultural Services business. “These elevators are well equipped to handle the harvest with high-speed unloading to help growers get in and out quickly. We look forward to meeting and working with area farmers for the upcoming harvest.”

Slovakia grain storage assets

Archer Daniels Midland Company (NYSE:ADM) has acquired three grain elevators in Slovakia from the companies Palma Group a.s. and Polnonakup Hont a.s. The new assets are ADM’s first in the country.

“The acquisition of these elevators extends ADM’s origination network into Slovakia and along the Danube River, advancing our strategy to grow our reach in Central and Eastern Europe,” said Tido Boehle, ADM general manager, Origination and Terminals, Europe. “The facilities will store and supply crops for our European processing facilities and will help us better serve the local farming community by connecting local crops to export markets.”

Located in Levice, Hontianske Nemce and Secovce, in the south and east of Slovakia, the silos will enable ADM to secure additional rape and sun seed, as well as corn and wheat from new supply sources. The three facilities have a combined storage capacity of 149,000 metric tons, as well as train loading capabilities.

Port terminal in Northern Brazil

According to the company’s conference call, “this investment is part of the overall strategy to increase the origination and transportation networks in the world’s most productive regions. This port will increase our capacity to export grains from West and Northern Brazil and further expand our fertilizer operations throughout the country. We will be converting the facility from handling minerals to handling agro products, and we expect it to be up and running by early 2014. Our purchase is subject to regulatory approval.”

ADM intends to upgrade it to handle Panamax vessels and to double its storage capacity. After revamping, the port is expected to handle about 3 million metric tonnes a year. ADM already owns a port terminal in Santos, Sao Paulo.

The new port will enable the company to bring the Brazilian agro harvests within reach of its global operations across Europe, the Middle East, and Asia via the Panama canal.